The fintech boom seems to be showing no signs of abating. However, working in a sector where security and accountability are crucial does not come without some level of danger\u2014in fact, it involves a significant amount of risk.<\/p>\n\n\n\n
The operations teams of fintech organizations bear the majority of the uncertainty. Because the velocity of work, fluctuating market circumstances, and rate of unanticipated changes outstrip the company’s existing procedures and operating norms in many scenarios, the industry is a particularly challenging one to work in.<\/p>\n\n\n\n
Instead of having the luxury of time on their side, as is the case with conventional financial institutions, fintech must anticipate everything to happen at warp speed. In real-time operations management, fintech teams are exposed to the most outstanding amount of risk, and it is also where 99% of the most expensive errors occur.<\/p>\n\n\n\n
Despite the risks, though, the fintech industry comes with a lot of promise. Should you be looking to operate in this area, however, risk mitigation is essential. If you are aware of the following operational risks, you\u2019ll be able to manage them and increase your chances of success:<\/p>\n\n\n\n
Random market trends pose a significant operational risk\u2014precisely because they are unexpected. The overreaction that occurs in the aftermath of a significant market occurrence may result in significant liquidity, processes, and even promotional activities for fintech companies and financial institutions.<\/p>\n\n\n\n
Many additional risk factors, like financial contagion, pro-cyclicality, excess volatility, and others, might occur in the market, disrupting fintech services. The operations and customer service teams are required to think on their feet and generate quick, ad hoc answers in each of these situations. Likewise, contingency planning is seldom successful in producing the necessary reaction. As is customary in the fintech industry, prompt and proper consumer communication is essential to keep up with the trends. <\/p>\n\n\n\n
A significant disadvantage of fintech is its ability to actively increase the risk to current financial systems and markets. The more the number of systems linked by fintech, the greater the number of possible incursions for cyber assaults to take advantage of. Because of the wide range of business and operational models in the fintech industry, no “one size fits all” cybersecurity infrastructure solution is available. To guarantee that high-potential vectors for cybersecurity breaches are discovered and addressed, it is critical to hire competent cyber risk management and information technology security teams.<\/p>\n\n\n\n
Having the appropriate security assets, on the other hand, does not relieve fintech operations executives of their everyday concerns about cyber occurrences. Any cyber danger, like any market event, would need a swift and planned reaction from operations teams to be effective. Any mistakes that are committed throughout the procedure may prove to be highly expensive.<\/p>\n\n\n\n
Historically, conventional financial institutions have been shielded from competition by the national circumstances of their various markets. Each national jurisdiction has a unique set of financial circumstances and rules, which results in financial institutions that are compliant and provide services suited to the demands of the local community.<\/p>\n\n\n\n
However, these national barriers have been quickly eroding in recent years, owing to the fast emergence of fintech businesses that provide worldwide financial solutions. Consequently, it has been forced to choose between competing directly with agile fintech businesses or learning to collaborate and form joint alliances. This conventional vs. agile dynamic has sparked a globally competitive environment, and firms seeking to succeed in the fintech race must select their strategic partnerships carefully.<\/p>\n\n\n\n
There is little question that risk is the primary emphasis in the financial technology business concerning regulation and compliance. Regulators must be confident that fintech businesses consider risks and implement mitigation measures following applicable laws and regulations.<\/p>\n\n\n\n
Many countries, however, are unable to keep up with the rapid speed of technological development because their regulatory breadth is inadequate. As a result, many fintech teams find themselves in a situation where regulatory standards constantly change, making the standardization of compliance procedures exceedingly challenging.<\/p>\n\n\n\n
Many fintech verticals are not as strictly regulated as traditional financial institutions; however, regulations such as GDPR and PSD2 establish precise requirements for protecting data and securing system infrastructures, impacting European fintech in general and general fintech verticals in particular. Regional and national regulatory bodies, such as the FCA in the United Kingdom, the AMF and the ACPR in France, the BaFin in Germany, and the SEC and the CFTC in the United States, often impose an extra regulatory layer that has ramifications for fintech as well. If these rules are not strictly followed, businesses face the danger of being detected in noncompliance, being fined excessively, and losing their good name in the marketplace.<\/p>\n\n\n\n
Hiring professional risk management assistance and establishing a proven risk assessment methodology are two common ways to begin fintech risk reduction efforts. However, more often than not, you can trace the more significant risk exposure back to the organization’s operational procedures\u2014or the absence thereof. Operations organizations are often held responsible for process management for risk situations such as those described above. In these instances, the degree of risk is significantly decreased in proportion to how clearly defined a particular fintech process is and whether or not the process is automated, in part or whole.<\/p>\n\n\n\n